The management and board of Telesis Community Credit Union, as well as the NCUA and California Department of Financial Institutions, are responsible for the credit union’s failure, according to a Material Loss Review released this week by the NCUA’s Office of Inspector General.

The OIG concluded that the $318 million credit union’s leaders deserve most of the blame for investing too heavily into member business loans, failing to properly calculate loan loss allowances, depending too much upon its business lending CUSO for revenue, and spending too much on operating expenses.

At one point in 2007, the report said, Telesis’s commercial real estate loan portfolio represented 44% of its total assets. Telesis was able to exceed the 12.5% member business loan cap thanks to a 1998 waiver granted by the NCUA.

The NCUA liquidated Telesis on June 1, 2012, after the state seized the failed Chatsworth, Calif., credit union on March 24, 2012. The federal agency soon after put $177 million into a purchase and assumption deal with the $1.3 billion Premier America CU, also in Chatsworth.

Telesis’ dependence upon business lending grew when it established MBL CUSO Credit Union Business Partners in 2002. Business Partners quickly grew Telesis’ business loan portfolio, specializing in five-year balloon terms that were susceptible to economic downturn, the report said.

Telesis’ amplified its concentration risk with incorrect allowance for loan loss provisioning. The report said management failed to impair individual loans and used inappropriate loss projections on loan pools. Examiners even reported Telesis “applying a zero percent historical loss rate over MBLs” when current delinquencies at Telesis and industry-wide suggested much higher rates, the OIG said.

Telesis management was also cited for poor due diligence in purchasing unprofitable CUSOs Auto Seekers and Autoland.

The OIG additionally questioned a conflict of interest in 2007 when Telesis bought out AutoSeekers co-owner California Bear Credit Union of Los Angeles. At the time of the deal, CalBear’s president/CEO Walt Aguis, who was also CEO of AutoSeekers, was married to Telesis CEO Grace Mayo.

Telesis management also concentrated too much power in just two people, Mayo and Executive Vice President Jean Faenza, the report said.

“The CEO appears to have had a persuasive and aggressive management style,” the report said. Mayo was also well known in the industry and viewed as strategically successful. Those two factors resulted in the board tending to “follow her recommendations with little discussion.”

Both federal and state regulators share in the blame for the Telesis failure, the OIG report said. The NCUA could have prevented or mitigated the $77 million loss to the share insurance fund had it taken “a more timely and aggressive supervisory approach” regarding loan concentration risks. The NCUA also shifted Telesis between three different regional offices from when it was downgraded to a 4 CAMEL rating in September 2007 to when it was seized in March 2012. The NCUA and California Department of Financial Institutions also failed to communicate throughout the dual examination process, the OIG report said.

The NCUA also told the OIG the California DFI “sent mixed messages regarding whether they would agree to the NCUA examiners’ recommendations and took considerable time to negotiate a final resolution.”

The DFI conversely accused the NCUA Board of holding up conservatorship enforcement by requiring coordination with regular board meetings, the report said.